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Monday, July 02, 2007

Novartis’ CEO and chairman Dan Vasella is probably feeling quite pleased that he bought his $5.1 billion ticket into the vaccines arena through acquiring Chiron in 2005.

It might not have been an easy, or cheap, buy (remember Novartis had to push up its bid and there were all sorts of problems with Chiron's Liverpool manufacturing plant), but it does give Novartis options beyond regular therapeutics, as we explained more fully here.

Options which it could do with, frankly. The Swiss group has seen Cox-2 inhibitor Prexige blocked out of the US so far, caught up in the Vioxx-wake (with prospects looking bleaker following the fall of Merck’s Arcoxia in April). It’s also having to watch Merck’s Januvia run away as the first DPP-IV inhibitor available to diabetes patients, since its own Galvus received only an approvable letter in February.

Enter vaccines. Although they have already, thanks to bioterrorism and pandemic preparedness, shed their image as fusty, low-margin cousins to therapeutics, vaccines have more recently achieved full stardom since the launch of Merck/Sanofi Pasteur MSD’s cervical cancer vaccine Gardasil. Vaccines are being investigated in a growing number of therapeutic areas, including cancer, and can now command premium pricing. (Their development, as we explained here, also provides some useful lessons for today’s pharma execs.)

That’s in part why the numbers in Novartis’ deal with Austria’s Intercell, announced this morning, look rather good. The Swiss group pays €120 million ($160 million) up front, plus a further €150 million in cash to buy equity in Intercell, in exchange for exclusive rights to Intercell’s adjuvant technology, IC31, for developing influenza vaccines, and non-exclusive rights in other areas. Novartis also gets opt-in rights to any of Intercell’s un-partnered vaccine targets after Phase II (or earlier), but must allow the biotech co-development or a licensing arrangement on any products that it opts in.

It’s Roche-Genentech all over again—or sort of. It would have been much cheaper for Novartis to buy Intercell outright (in addition to the total $360 million cash upfront, this deal could cost Novartis up to $134 million in development milestones for developing IC31 in influenza, $40-80 million in upfront and milestone payments on each other IC31 license, plus up to $150 million in development milestones post-Phase II…not to mention rich double-digit royalties on each product Novartis opts in on).

But these days, the arm’s length, leave-it-alone strategy of partnering with biotech is as fashionable as vaccines themselves (granted, of course, that the Big Pharma partner isn’t forced into buying outright, as many have been recently). Think of other portfolio-based, risk-sharing deals like Novartis’ own 2003 deal with Idenix, or GlaxoSmithKline’s respiratory tie-up with Theravance: the idea being to leave the biotech (largely) to its own devices.

This is the first such deal in vaccines, though, according to the partners. And although Novartis did take a majority stake in Idenix (which was private at the time), it’s sticking with a 16%, non-controlling stake in Intercell. “If they got to 25%, they’d have to make a mandatory bid,” explains Intercell’s CFO Werner Lanthaler. But, he says, “Novartis understand how important it is to leave us our independent spirit.”

Indeed, independent Intercell has done alright so far. Since listing in 2005, the company’s share price has climbed almost 300%, and the group has partnering deals with Merck, Sanofi Pasteur, Wyeth and Kirin, among others. It has submitted its first BLA, for a Japanese Encephalitis vaccine, and has a therapeutic vaccine for Hepatitis B and a prophylactic vaccine for pseudomonas both in Phase II trials.

Novartis may soon have two more Phase II candidates, plus a novel influenza platform to back up its own Optaflu cell-culture based vaccine, approved in the EU in June. And all thanks to vaccines.

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